This is a topic very near and dear to me. Yes, I realize it’s not purely a political issue – well, at least not in the sense that we necessarily need to look to government for changes. But poverty IS a critical political issue – and this topic concerns one of the factors in that.

Let’s be clear – this affects those lower middle class and below. If you can afford to buy a $250,000 house and the bank doesn’t laugh at you, this isn’t about you.

This is a problem of those who take home incomes around the poverty line. These are the folks who work at least 40 hours a week – sometimes more with more than one job – and upwards of 40% of that goes to housing that buys NOTHING but use. No equity, no home, no resale value – not even the right to hammer nails into the walls to put up a danged picture. Just the use of the property for the month.

Year in and year out, they pay their rent on time. They have little or no ability to save substantial enough reserves to make a down payment, and/or they don’t have good enough credit to qualify for a mortgage. That means that those who rent houses ARE usually buying a house – for someone else.

There’s nothing inherently unfair about rent – trading money for use and access is a perfectly good deal – but only in the short term. It’s a terrible deal in the long term. The problem isn’t in rentals per se – it’s in the way we buy houses.

The same person that cannot get a mortgage can get a car loan. This is weird – the car can move (and that little GPS can be defeated) so if any property were at significant risk of being stolen from the lender, it would be a car. Yet car loans are granted daily to people that have no hope of getting a mortgage – and it’s a LOT tougher to move a house!

As the years go by, most of the person’s take home income will be eaten away by rent with nothing to show for it other than usage. Nothing of long term significance is gained. If they haven’t managed to buy before retirement – or disability – takes them from the work force then government assistance is likely to be the only way to keep a roof over their heads. This has dramatic costs for society – not just the monthly expenditure – and ultimately, it’s extremely poor economic policy.

Let’s back up a few decades. What if this person could buy a home? Nothing else changes – they never move up the income ladder for whatever the reason – but they have a deed. Now that 40% can go into their savings. Part of it will get eaten by maintenance, sure – and another part will get eaten by consumer spending even with the best budgeting (look, sometimes you just really need a new table) – but they now can save for other needs.

Like cars, fridges, and that dishwasher they dreamed of. We have a consumer driven economy – and a huge amount of money is going exclusively to the housing sector. Granted, houses aren’t free – but is paying twice the agreed price over the course of thirty years really the best economic model? It’s not for those who can’t buy at all, of course – and it’s not for those in the same income brackets that manage to get a mortgage, either. Interest is EXPENSIVE and all the money going to interest is money that can’t get spent at the local store – or Amazon – or anywhere else.

So where does government come in? In what is does so badly – regulation. Government, and the Federal Reserve, often make it harder for the low income folks to buy houses. It’s not some evil conspiracy – it’s applying well intentioned ‘one size fits all’ solutions that end up stifling the ability of lenders and investors to creatively – and equitably – finance housing.

That’s not the only part of the puzzle – far from it. We really do need to wean our financial institutions off of the interest teat. Interest is a valid tool – but we keep using a power hammer to drive a brad nail.